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§ 991.1703. Coverage and limitations

Purdon's Pennsylvania Statutes and Consolidated StatutesTitle 40 P.S. InsuranceEffective: November 3, 2020

Purdon's Pennsylvania Statutes and Consolidated Statutes
Title 40 P.S. Insurance (Refs & Annos)
Chapter 2. Insurance Companies (Refs & Annos)
Article XVII. Life and Health Insurance Guaranty Association
Effective: November 3, 2020
40 P.S. § 991.1703
§ 991.1703. Coverage and limitations
Currentness
<For applicability of the amendment of this section by Act 2020, Nov. 3, P.L. 1097, No. 113, see § 4 of that Act.>
(a) This article shall provide coverage to the following persons for the policies and contracts specified in subsection (b):
(1) To persons who, regardless of where they reside, except for nonresident certificate holders or enrollees under group policies or contracts, are the beneficiaries, assignees or payees, including health care providers rendering services covered under health insurance policies or certificates of the persons covered under paragraph (2).
(2) To persons who are owners of or certificate holders or enrollees under these policies or contracts, other than unallocated annuity contracts and structured settlement annuities, and who:
(i) are residents; or
(ii) are not residents, but only under all of the following conditions:
(A) the member insurer that issued such policies or contracts is domiciled in this Commonwealth;
(B) the states in which the persons reside have associations similar to the association created by this article; and
(C) the persons are not eligible for coverage by associations in any other state due to the fact that such insurers, RANLI PPOs, hospital plan corporations, professional health services plan corporations or health maintenance organizations were not licensed or did not hold a certificate of authority in the states in which the persons reside at the time specified in the state's guaranty association law.
(3) For unallocated annuity contracts specified in subsection (b), paragraphs (1) and (2) shall not apply, and this article shall, except as provided in paragraphs (5) and (6), provide coverage to:
(i) Persons who are the owners of the unallocated annuity contracts if the contracts are issued to or in connection with a specific benefit plan whose plan sponsor has its principal place of business in this Commonwealth.
(ii) Persons who are owners of unallocated annuity contracts issued to or in connection with government lotteries if the owners are residents.
(4) For structured settlement annuities specified in subsection (b), paragraphs (1) and (2) shall not apply, and this article shall, except as provided in paragraphs (5) and (6), provide coverage to a person who is a payee under a structured settlement annuity or beneficiary of a payee if the payee is deceased, if the payee:
(i) is a resident, regardless of where the contract owner resides; or
(ii) is not a resident, but only under both of the following conditions:
(A)(I) the contract owner of the structured settlement annuity is a resident; or
(II) the contract owner of the structured settlement annuity is not a resident; but
(a) the member insurer that issued the structured settlement annuity is domiciled in this Commonwealth; and
(b) the state in which the contract owner resides has an association similar to the association created by this article; and
(B) neither the payee or beneficiary nor the contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides.
(5) This article shall not provide coverage to:
(i) a person who is a payee or beneficiary of a contract owner resident of this Commonwealth, if the payee or beneficiary is afforded any coverage by the association of another state;
(ii) a person covered under paragraph (3), if any coverage is provided by the association of another state to the person; or
(iii) a person who acquires rights to receive payments through a structured settlement factoring transaction as defined in 26 U.S.C. § 5891(c)(3)(A) (relating to structured settlement factoring transactions), regardless of whether the transaction occurred before or after the section became effective.
(6) This article is intended to provide coverage to a person who is a resident of this Commonwealth and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this article is provided coverage under the laws of any other state, the person shall not be provided coverage under this article. In determining the application of the provisions of this paragraph in situations where a person could be covered by the association of more than one state, whether as an owner, payee, enrollee, beneficiary or assignee, this article shall be construed in conjunction with other state laws to result in coverage by only one association.
(b)(1) This article shall provide coverage to the persons specified in subsection (a) for policies or contracts of direct, nongroup life insurance, health insurance, which for the purposes of this article includes, RANLI PPO, hospital plan corporation, professional health services plan corporation and health maintenance organization subscriber policies, contracts, and certificates or annuities and supplemental contracts to any of these, for certificates under direct group policies and contracts and for unallocated annuity contracts issued by member insurers, except as limited by this article. Annuity contracts and certificates under group annuity contracts include, but are not limited to, guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, allocated funding agreements, structured settlement annuities, annuities issued to or in connection with government lotteries and any immediate or deferred annuity contracts.
(2) Except as otherwise provided in paragraph (3), this article shall not provide coverage for any of the following:
(i) Any portion of a policy or contract not guaranteed by the member insurer or under which the risk is borne by the policy or contract holder.
(ii) Any policy or contract of reinsurance, unless assumption certificates have been issued.
(iii) Any portion of a policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value:
(A) averaged over the period of four (4) years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this article, whichever is earlier, exceeds a rate of interest determined by subtracting two (2) percentage points from Moody's Corporate Bond Yield Average averaged for the same four-year period or for such lesser period if the policy or contract was issued less than four (4) years before the member insurer becomes an impaired or insolvent insurer under this article, whichever is earlier; and
(B) on and after the date on which the member insurer becomes an impaired or insolvent insurer under this article, whichever is earlier, exceeds the rate of interest determined by subtracting three (3) percentage points from Moody's Corporate Bond Yield Average as most recently available.
(iv) Any portion of a policy or contract issued to a plan or program of an employer, association or similar entity to provide life, health or annuity benefits to its employees, members or others to the extent that such plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association or similar entity under:
(A) a Multiple Employer Welfare Arrangement as defined in section 3(40) of the Employee Retirement Income Security Act of 1974 (Public Law 93-406, 29 U.S.C. § 1002(40));
(B) a minimum premium group insurance plan;
(C) a stop-loss group insurance plan; or
(D) an administrative services only contract.
(v) Any portion of a policy or contract to the extent that it provides dividends or experience rating credits, voting rights or for the payment of any fees or allowances to any person, including the policyholder or contract holder, in connection with the service to or administration of such policy or contract.
(vi) Any policy or contract issued in this Commonwealth by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue such policy or contract in this Commonwealth.
(vii) Any unallocated annuity contract issued to an employee benefit plan protected under the Federal Pension Benefit Guaranty Corporation, regardless of whether the Federal Pension Benefit Guaranty Corporation has yet become liable to make any payments with respect to the benefit plan.
(viii) Any portion of any unallocated annuity contract which is not issued to or in connection with a specific employee, union or association of natural persons benefit plan or a government lottery.
(ix) A portion of a policy or contract to the extent that the assessments required by section 17071 with respect to the policy or contract are preempted by Federal or State law.
(x) An obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, contract owner or policy owner, including, without limitation:
(A) claims based on marketing materials;
(B) claims based on side letters, riders or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements;
(C) misrepresentations of or regarding policy or contract benefits;
(D) extracontractual claims; or
(E) a claim for penalties or consequential or incidental damages.
(xi) A contractual agreement that establishes the member insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer.
(xii) A portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner's rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this article, whichever is earlier. If a policy's or contract's interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this subparagraph, the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture.
(xiii) A policy or contract providing any hospital, medical, prescription drug or other health care benefits under Part C or D of Title XVIII of the Social Security Act (Public Law 74-271, 42 U.S.C. § 1395 et seq.), Title XIX of the Social Security Act (Public Law 74-271, 42 U.S.C. § 1396 et seq.), Article XXIII-A or any regulations issued pursuant thereto.
(xiv) Structured settlement annuity benefits to which a payee or beneficiary has transferred the payee's or beneficiary's rights in a structured settlement factoring transaction as defined in 26 U.S.C. § 5891(c)(3)(A) (relating to structured settlement factoring transactions), regardless of whether the transaction occurred before or after the section became effective.
(3) The exclusion from coverage referenced in paragraph (2)(iii) shall not apply to any portion of a policy or contract, including a rider, that provides long-term care or any other health insurance benefits.
(c)(1) The benefits for which the association may become liable shall in no event exceed the lesser of:
(i) the contractual obligations for which the member insurer is liable or would have been liable if it were not an impaired or insolvent insurer; or
(ii)(A) With respect to any one life, regardless of the number of policies or contracts, the following shall apply:
(I) Three hundred thousand ($300,000) dollars for life insurance death benefits, but not more than one hundred thousand ($100,000) dollars in net cash surrender and net cash withdrawal values for life insurance.
(II) For health insurance benefits:
(1) One hundred thousand ($100,000) dollars for coverages or benefits not defined as disability income insurance as defined by 31 Pa. Code § 88.167 (relating to disability income protection coverage), health benefit plans as defined by section 17022 of this article or long-term care insurance as defined in section 1103,3 including any net cash surrender and net cash withdrawal values.
(2) Three hundred thousand ($300,000) dollars for disability income insurance, as defined by 31 Pa. Code § 88.167, and long-term care insurance benefits as defined under section 1103, including any cash surrender and net cash withdrawal values.
(3) Five hundred thousand ($500,000) dollars for health benefit plans.
(III) Two hundred fifty thousand ($250,000) dollars in the present value of annuity benefits, including net cash surrender and net cash withdrawal values.
(B) With respect to each individual participating in a governmental retirement plan established under section 401, 403(b) or 457 of the Internal Revenue Code of 1986 covered by an unallocated annuity contract or the beneficiaries of each such individual if deceased, in the aggregate, two hundred fifty thousand ($250,000) dollars in present value annuity benefits, including net cash surrender and net cash withdrawal values.
(C) With respect to each payee of a structured settlement annuity, or beneficiary or beneficiaries of the payee if deceased, two hundred fifty thousand ($250,000) dollars in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any.
(D) With respect to either one contract owner provided coverage under subsection (a)(3)(ii) or one plan sponsor whose plans own directly or in trust one or more unallocated annuity contracts not included in clause (B), five million ($5,000,000) dollars in benefits, irrespective of the number of such contracts held by that contract owner or plan sponsor. In the case where one or more unallocated annuity contracts are covered contracts under this article and are owned by a trust or other entity for the benefit of two (2) or more plan sponsors, coverage shall be afforded by the association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this Commonwealth and in no event shall the association be obligated to cover more than five million ($5,000,000) dollars in benefits with respect to all these unallocated contracts.
(E) The association shall not, however, be liable to expend more than three hundred thousand ($300,000) dollars in the aggregate with respect to any one individual under subparagraph (ii)(A), (B) or (C) of paragraph (1), except with respect to benefits for health benefit plans under subclause (II)(3) of clause (A), in which case the aggregate liability of the association shall not exceed five hundred thousand ($500,000) dollars with respect to any one individual, or with respect to one owner of multiple nongroup policies of life insurance, whether the policy or contract owner is an individual, firm, corporation or other person, and whether the persons insured are officers, managers, employees or other persons, more than five million ($5,000,000) dollars in benefits, regardless of the number of policies and contracts held by the owner.
(F) The limitations specified in this section are limitations on the benefits for which the association is obligated before taking into account either the association's subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. The costs of the association's obligations under this article may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to the association's subrogation and assignment rights.
(G) For purposes of this article, benefits provided by a long-term care rider to a life insurance policy or annuity contract shall be considered the same type of benefits as the base life insurance policy or annuity contract to which the rider relates.
(d) In performing its obligations to provide coverage under section 1706, the association shall not be required to guarantee, assume, reinsure, reissue or perform, or cause to be guaranteed, assumed, reinsured, reissued or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy that do not materially affect the economic values or economic benefits of the covered policy.

Credits

1921, May 17, P.L. 682, No. 284, art. XVII, § 1703, added 1992, Dec. 18, P.L. 1519, No. 178, § 19, imd. effective. Amended 2007, July 17, P.L. 134, No. 40, § 5, imd. effective; 2020, Nov. 3, P.L. 1097, No. 113, § 1.2, imd. effective.

Footnotes

1
40 P.S. § 991.1707.
2
40 P.S. § 991.1702.
3
40 P.S. § 991.1103.
40 P.S. § 991.1703, PA ST 40 P.S. § 991.1703
Current through Act 10 of the 2024 Regular Session. Some statute sections may be more current, see credits for details.
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